Version A

I. Multiple choice [1 pt each: 15 pts total]

(1)b. (2)c. (3)f. (4)b. (5)d. (6)b. (7)c. (8)b. (9)c. (10)b. (11)a. (12)b. (13)c. (14)d. (15)a.

II. Problems

(1) [Spending approach to GDP: 16 pts]

1. YES. Investment (I).
2. YES. Net exports (X).
3. YES. Consumption (C).
4. NO. Not produced in 2025.

(2) [Components of GDP: 16 pts] Concrete Land

1. Consumption = $5 trillion, investment = $2 trillion, government purchases = $1.5 trillion, total GDP = $8.5 trillion.
2. Value added equals sales minus purchases of intermediate goods (raw concrete). Value added by Raw Concrete Industry = $2.5 trillion, by Building Industry = $1.5 trillion, by Road Construction Industry = 1 trillion, by Birdbath Industry = $3.5 trillion. (Note that total value added must equal GDP.)

(3) [GDP, saving, GDP per capita: 6 pts]

1. $21.3 trillion = consumption + investment + government purchases + net exports.
2. $3.1 trillion = GDP - consumption - government purchases.
3. GDP per capita = GDP/population = $64,157. (Note that before dividing, everything should be in the same units--say, millions. GDP in millions = GDP in trillions × 1,000,000.)

(4) [Spending approach: 12 pts]

1. $17.5 trillion = consumption of durable goods + consumption of nondurable goods + consumption of services.
2. $4.8 trillion = business fixed investment + residential investment + change in inventories.
3. $2.0 trillion = gross investment - depreciation.
4. $4.4 trillion = national defence purchases + federal nondefense purchases + state and local purchases.
5. trade deficit, because exports < imports.
6. $-1.0 trillion = exports - imports.

(5) [Stocks v. flows: 8 pts]

1. FLOW.
2. STOCK.
3. STOCK.
4. FLOW.

(6) [Value added: 2 pts] $400,000 = revenue - payments for intermediate goods (wholesale books).

(7) [GDP and real GDP: 8 pts]

	Food		Clothing		Calculations
Year	Price	Quantity	Price	Quantity	2024 prices	2025 prices
2024	$3	100	$4	50	$500	$800
2025	$6	100	$4	60	$540	$840

1. 68 percent, using diagonal entries above because nominal GDP is computed using prices and quantities from the same period.
2. 8 percent, using entries in the first column (2024 prices) above.
3. 5 percent, using entries in the second column (2025 prices) above.
4. 6.5 percent, the average of the growth rate using constant 2024 prices and the growth rate using constant 2025 prices.

(8) [Nominal GDP, real GDP, and inflation: 7 pts] Data for Mexico

1. base year = 2018 (because nominal GDP = real GDP in that year).
2. GDP price index = nominal GDP / real GDP × 100 = 89.3, 94.9, 100.0.
3. Rate of inflation = (new price index - old price index) / (old price index) = 6.3 percent, 5.4 percent.

(9) [Using CPI: 2 pts] $3.60.

(10) [Using market exchange rate: 2 pts] $40.54.

(11) [PPP exchange rate: 2 pts] 0.91 Swiss francs per US dollar.

III. Critical thinking [4 pts]

(1) Real GDP usually grows faster than real GDP per capita. Real GDP per capita is defined as real GDP divided by population. Therefore the growth rate of real GDP per capita is approximately the growth rate of real GDP minus the growth rate of population. In most countries, population is growing--that is, the growth rate of population is positive. So the growth rate of real GDP per capita is less than the growth rate of real GDP.

(1) The spending component of GDP that is most important for future economic growth is investment (I). Investment spending is spending on new economic capital, such as machinery and equipment, buildings, trucks, bulldozers, communication towers, computers and software. New capital enables workers to do more, thus increasing the productive capacity of the economy.

Version B

I. Multiple choice [1 pt each: 15 pts total]

(1)d. (2)d. (3)b. (4)a. (5)a. (6)c. (7)a. (8)e. (9)d. (10)d. (11)c. (12)b. (13)a. (14)a. (15)a.

II. Problems

(1) [Spending approach to GDP: 16 pts]

1. YES. Net exports (X).
2. NO. Not produced in 2025.
3. YES. Investment (I).
4. YES. Investment (I).

(2) [Components of GDP: 16 pts] Concrete Land

1. Consumption = $10 trillion, investment = $4 trillion, government purchases = $3 trillion, total GDP = $17 trillion.
2. Value added equals sales minus purchases of intermediate goods (raw concrete). Value added by Raw Concrete Industry = $4.5 trillion, by Building Industry = $3 trillion, by Road Construction Industry = $2 trillion, by Birdbath Industry = $7.5 trillion. (Note that total value added must equal GDP.)

(3) [GDP, saving, GDP per capita: 6 pts]

1. $25.7 trillion = consumption + investment + government purchases + net exports.
2. $3.8 trillion = GDP - consumption - government purchases.
3. GDP per capita = GDP/population = $76,946. (Note that before dividing, everything should be in the same units--say, millions. GDP in millions = GDP in trillions × 1,000,000.)

(4) [Spending approach: 12 pts]

1. $14.2 trillion = consumption of durable goods + consumption of nondurable goods + consumption of services.
2. $3.9 trillion = business fixed investment + residential investment + change in inventories.
3. $1.5 trillion = gross investment - depreciation.
4. $4.0 trillion = national defence purchases + federal nondefense purchases + state and local purchases.
5. trade deficit, because exports < imports.
6. $-0.7 trillion = exports - imports.

(5) [Stocks v. flows: 8 pts]

1. STOCK.
2. FLOW.
3. FLOW.
4. STOCK.

(6) [Value added: 2 pts] $450,000 = revenue - payments for intermediate goods (ingredients).

(7) [GDP and real GDP: 8 pts]

	Food		Clothing		Calculations
Year	Price	Quantity	Price	Quantity	2024 prices	2025 prices
2024	$5	10	$4	50	$250	$500
2025	$5	16	$9	50	$280	$530

1. 112 percent, using diagonal entries above because nominal GDP is computed using prices and quantities from the same period.
2. 12 percent, using entries in the first column (2024) above.
3. 6 percent, using entries in the second column (2025) above.
4. 9 percent, the average of the growth rate using constant 2024 prices and the growth rate using constant 2025 prices.

(8) [Nominal GDP, real GDP, and inflation: 7 pts] Data for Chile

1. base year = 1995 (because nominal GDP = real GDP in that year).
2. GDP price index = nominal GDP / real GDP × = 98.4, 100.0, 102.6.
3. Rate of inflation = (new price index - old price index) / (old price index) = 1.6 percent, 2.6 percent.

(9) [Using CPI: 2 pts] $25,208.

(10) [Using market exchange rate: 2 pts] $12.66.

(11) [PPP exchange rate: 2 pts] 15.38 Mexican pesos per U.S. dollar.

III. Critical thinking

Same as Version A.

[end of answer key]